Hey. This is an AIG thread. There are threads about the stimulus, but this one is about TARP.

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I still feel the goal of TARP was setup against a straw man. Bankruptcy is an ordered way for companies to either be reorganized or liquidated. Bankruptcy courts have wide latitude in dealing with these proceses.

"AIG would have gone bankrupt" just doesn't scare me as much as some people I guess. Or more importantly "the gov't is bailing out AIG scares me more." If AIG had gone bankrupt, it's likely that the big losers would have been European banks (going from memory here). My understanding is they had one division (out of many) that had all the contracts to insure the losses in housing derived assets. The biggest losers if these failed were not US ibanks, but European banks. No reason the US needed to bail those banks out. (Again going by memory from the time, might not have it 100%.)

So, this is all well and good for institutions that don't pose systemic risk to the entire world economy. If Apple went under tomorrow, it would be very painful for a lot of people everywhere, but life would go on, and bankruptcy is appropriate. AIG in 2008: not the same thing. Credit seizes up, that's bad for everyone, even people unrelated to the shenanigans. The size of the "contracts" was the problem, we're talking about trillions of dollars once you follow the rabbit all the way down the hole. Pinning it on "one division" of AIG really plays down the central problem.

And though this would have meant trouble for the European banks, I'd like to remind anyone who might think their loss is our gain: that's not how it works. We export a lot of things to that continent. If they self-destruct, we will feel it.

It wouldn't have been isolated to the European banks, though. If they failed, the next shoe to drop was probably going to be Goldman Sachs. Bailouts suck, suck, suck, suck, SUCK, which is why I wish they'd blow the [dang] banks up into smaller pieces now that things have stabilized, but the *world* financial markets couldn't have handled an AIG failure at that moment.

Just my recollection is that the US banks were in a much better position to weather the storm (well except the ones which weren't and they went by by anyways.)

Quick google search:

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In the largest specific case, TARP’s $70 billion bailout of AIG has beneficially contributed to other nation’s firms and institutions, most successfully to France and Germany. The insurance company AIG insured many “derivatives” and other financial instruments held by foreign banks and was obliged to cover their losses on these investments when market values plunged. U.S. TARP funds then made good AIG’s losses.

Why not just let AIG go under, bankruptcy would've protected 90% of AIGs business (the regular insurance stuff) isolate the 10% and corporate parent. Whatever is left gets paid out to the claimants (debt, business obligations, stockholders) per normal rules.

If AIG collapses other US banks (like Goldman and BoA) there is still a defensive position treasury can make to protect those banks. (Which I would have opposed too.)

That's not a full accounting, but at a macro level shows treasury is still way behind on bailout recovery (100s of billions.) Add in cost to administer, opportunity cost, and what it does systematically to encourage more activities leading to bailouts, I'll rate over all TARP as a negative value. (I'll discuss your argument that it has marginal value over alternative below.)

So, this is all well and good for institutions that don't pose systemic risk to the entire world economy. If Apple went under tomorrow, it would be very painful for a lot of people everywhere, but life would go on, and bankruptcy is appropriate. AIG in 2008: not the same thing. Credit seizes up, that's bad for everyone, even people unrelated to the shenanigans. The size of the "contracts" was the problem, we're talking about trillions of dollars once you follow the rabbit all the way down the hole. Pinning it on "one division" of AIG really plays down the central problem.

And though this would have meant trouble for the European banks, I'd like to remind anyone who might think their loss is our gain: that's not how it works. We export a lot of things to that continent. If they self-destruct, we will feel it.

The loss/gain thing is just a straw man. No one has said that. Question is should the Fed Gov't be taking action to save banks in other nations.

Just saying "credit would have dried up and that's bad" doesn't make you right. Sure its bad - but so is gov't action that's unpredictable. Instead of credit drying up in the financial sector, it dried up in the business sector, businesses said **** and sat on their hands for a couple of years - a big part of the jobs not created.

Quick google link - Forbes article from last year about why TARP was a negative:

That's not a full accounting, but at a macro level shows treasury is still way behind on bailout recovery (100s of billions.

I linked the summary page. Please note that you actually can drill down into the specifics of each individual part of the program. It may not be enough to satisfy your curiosities, but there is data there if you look. Here's an example, the is the nitty gritty for AIG:

Second, be very careful not to lump the Fannie/Freddie bailout into TARP. They are two separate things. Treasury is "behind" overall, but it's because of the drag from F/F. In terms of TARP, they are probably ahead.

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The loss/gain thing is just a straw man. No one has said that. Question is should the Fed Gov't be taking action to save banks in other nations.

People actually have said that. It's not a straw-man, it's weasel wording. Which is something that I actually despise, but it's tolerated around here, and so I thought to nip that argument in the bud before anyone had a chance to vocalize it.

And the answer to that question is "yes". The Federal government is responsible for well-being of the country that it represents. It was recognized fairly early on that contagion in Europe would spread here, in one way or another. We are too interconnected in the 21st century for it to be otherwise.

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Just saying "credit would have dried up and that's bad" doesn't make you right. Sure its bad - but so is gov't action that's unpredictable. Instead of credit drying up in the financial sector, it dried up in the business sector, businesses said **** and sat on their hands for a couple of years - a big part of the jobs not created.

It's six of one, half dozen of the other. There was no liquidity problem -- thanks to TARP and the Fed, there was plenty of cheap money available -- there was a lending problem: nobody was doing it.

You might argue that it was due to uncertainty/unpredictability caused by the government, but that's not an argument that I can take seriously, given the force with which they responded to the crisis. You might argue that business were scared to invest, and I'd agree with that: but only to the extent that they had no profitable investments to make, largely due to slack demand as a result of the crisis (and the massive unemployment from people cutting payroll to protect themselves).

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Quick google link - Forbes article from last year about why TARP was a negative:

My response to that article is the old Axelrod yarn: the nice thing about having no responsibility, is that you can say irresponsible things. The article references "raising private capital", which is a tell that the author doesn't really remember how bad things were back in 2008.

The same thing happens again and again when folks complain about the auto bailouts: should have gone through normal bankruptcy, raised money from private investors, sold off assets, yadda yadda yadda, ignores the fact that nobody was stepping up to do any of this. Uncle Sam was looking pretty hard, too.

When you factor in the fact that the US Government already lost 17.7 billion in taxes due to a tax waiver given to AIG as part of the bailout things don't look so rosy. This will still end up being a net loss for the US government by the time that AIG starts paying taxes again.

My response to that article is the old Axelrod yarn: the nice thing about having no responsibility, is that you can say irresponsible things. The article references "raising private capital", which is a tell that the author doesn't really remember how bad things were back in 2008.

The same thing happens again and again when folks complain about the auto bailouts: should have gone through normal bankruptcy, raised money from private investors, sold off assets, yadda yadda yadda, ignores the fact that nobody was stepping up to do any of this. Uncle Sam was looking pretty hard, too.

I find it kind of frustrating.

I would guess you find it frustrating. The reality is in total (TARP, Stimulus, F/F bailouts, Obamacare) - this president and the one before him dropped the ball. They introduced more, not less uncertainty, they enshrined too big to fail and bailouts as the status quo.

It's a fact that we are in the worst RECOVERY of any recession since FDR was in office. The end of the day we have to make a call, is this because of the (extra ordinary) policies GWB and BHO took since 2008 or despite them?

I've seen very little offered to show that it's despite them. And the argument that its easy for people not in power is a silly partisan argument that can be used to defend anything done ever by any gov't. Let's play this game:

Me: "Hitler you shouldn't have nationalized everything, started international wars, and the Holocaust"

That's not a full accounting, but at a macro level shows treasury is still way behind on bailout recovery (100s of billions.

I linked the summary page. Please note that you actually can drill down into the specifics of each individual part of the program. It may not be enough to satisfy your curiosities, but there is data there if you look. Here's an example, the is the nitty gritty for AIG:

Second, be very careful not to lump the Fannie/Freddie bailout into TARP. They are two separate things. Treasury is "behind" overall, but it's because of the drag from F/F. In terms of TARP, they are probably ahead.

Yes I figured that out and looked into the details. Is not a full analysis of the costs - how much tax as Rondo mentioned, administrative costs? Where did the money come from and what did that cost? Etc.

They are still working at the GROSS level not a NET level. By definition a net analysis is going to cut into the gross and make the numbers look worse, and maybe negative.

That's not even including the costs associated with the policy ramifications.

The loss/gain thing is just a straw man. No one has said that. Question is should the Fed Gov't be taking action to save banks in other nations.

People actually have said that. It's not a straw-man, it's weasel wording. Which is something that I actually despise, but it's tolerated around here, and so I thought to nip that argument in the bud before anyone had a chance to vocalize it.

And the answer to that question is "yes". The Federal government is responsible for well-being of the country that it represents. It was recognized fairly early on that contagion in Europe would spread here, in one way or another. We are too interconnected in the 21st century for it to be otherwise.

It's responsible for the well being of the country it represents, but its also constrained. It's really unclear if this policy helped the country (if it did so much good, why are things so bad?), its also not clear that the actions were legal. The GM bankruptcy judge (for example) has indicated the governments of CA and US, GM, and new investors withheld information from the court and the whole case may be reopened.

Of course GM fits exactly into your Apple scenario from earlier.

Finally I think its altogether unclear that helping the European banks did any good. Just because we are "far too interconnected" doesn't mean that letting the market work is worse than intervention. The history of large scale intervention indicates odds are its the other way. Therefore IMO burden of proof is on you.

Just saying "credit would have dried up and that's bad" doesn't make you right. Sure its bad - but so is gov't action that's unpredictable. Instead of credit drying up in the financial sector, it dried up in the business sector, businesses said **** and sat on their hands for a couple of years - a big part of the jobs not created.

It's six of one, half dozen of the other. There was no liquidity problem -- thanks to TARP and the Fed, there was plenty of cheap money available -- there was a lending problem: nobody was doing it.

You might argue that it was due to uncertainty/unpredictability caused by the government, but that's not an argument that I can take seriously, given the force with which they responded to the crisis. You might argue that business were scared to invest, and I'd agree with that: but only to the extent that they had no profitable investments to make, largely due to slack demand as a result of the crisis (and the massive unemployment from people cutting payroll to protect themselves).

The force they responded? Laughable. They were sporadic - some companies get saved, some go it alone. Companies are forced to take TARP funds because they don't want banks later saying "we don't need it". All of the sudden TARP funds are given to GM and Chrysler, then the Gov't runs the bankruptcy deal, privileged bond holders are disadvantaged to help protect unions? That's not certainty.

IMO we traded a 6 months of pain, for 3 months of pain + a decade of anemic growth. Bad deal that.

When you factor in the fact that the US Government already lost 17.7 billion in taxes due to a tax waiver given to AIG as part of the bailout things don't look so rosy. This will still end up being a net loss for the US government by the time that AIG starts paying taxes again.

I agree that they ought to start paying taxes on profits again (and so does Elizabeth Warren, welcome to the strange bedfellows of politics), but 17.7b is still less than 22.7b. For a program that was expected to have a loss, a break-even is a success, and this is a small profit.

It's a fact that we are in the worst RECOVERY of any recession since FDR was in office. The end of the day we have to make a call, is this because of the (extra ordinary) policies GWB and BHO took since 2008 or despite them?

I've seen very little offered to show that it's despite them.

To be clear, it's that you don't accept those explanations. This is a recession caused by a financial crisis and debt overhang: it's not like the 80's, where the economy takes off once the Fed decides take its boot off our necks. We knew that this was going to be a slow recovery even before it started.

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And the argument that its easy for people not in power is a silly partisan argument that can be used to defend anything done ever by any gov't. Let's play this game:

It's not very nice to Godwin this thread on page 2, particularly because it's for a false analogy.

The critics of TARP aren't advocating something less disruptive, they are advocating something MORE disruptive. I for one am glad that the lender of last resort, didn't take a step back and let market forces push the self-destruct button.

It's responsible for the well being of the country it represents, but its also constrained. It's really unclear if this policy helped the country (if it did so much good, why are things so bad?)

Just because it's unclear to you, and counter-factuals are hard to prove (it could have been worse), doesn't actually mean that it didn't help the country.

I assume that I don't need to prove to you that contagion in Europe would have spread here, since you called the notion that someone would have suggested the opposite a "straw man". It's hard to dismiss the notion that this couldn't have happened, had AIG been allowed to implode. That's the sticky thing about events with devastating consequences: you can't really dismiss small chances, especially when you don't get a second bite at the apple.

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its also not clear that the actions were legal. The GM bankruptcy judge (for example) has indicated the governments of CA and US, GM, and new investors withheld information from the court and the whole case may be reopened.

I expect that they weren't. This was pretty clear even with Hank Paulson, who didn't really have the authority for a lot of the things that he wanted to do.

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Of course GM fits exactly into your Apple scenario from earlier.

Hardly. There are plenty of people with money who would scoop up the assets of a dead Apple if it perished tomorrow. We're not in the middle of a financial crisis, where the sky is falling, and everyone is running scared. There is no need for a lender of last resort.

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Finally I think its altogether unclear that helping the European banks did any good. Just because we are "far too interconnected" doesn't mean that letting the market work is worse than intervention. The history of large scale intervention indicates odds are its the other way. Therefore IMO burden of proof is on you.

To be clear 17.7 Billion was what the study found as taxes lost as of last year, they still are not paying taxes and therefore that number will rise. Bailout watchgroups expect the lost taxes to rise above the 22.7 billion.

And yes, I did note that it was Elizabeth "Geronimo" Warren's group that came up with the 17.7 billion number. I appreciate that work she did.

Let's also take into fact that whatever monies were diverted to TARO, Fannie, Freddie, AIG, the auto companies etc., all turned into a net deficit for the country at the time meaning we needed to borrow money to make those trillions of dollars available to private enterprise for the bailout.

What exactly is the interest on that debt we needed to incur in order to make available the monies for all these bailouts?

There's a lot more that goes into the full P&L of the bailouts than some of the very simple numbers being thrown around by the government agencies who's job it is to make the bailouts look good.